How Will the End of Student Loan Forbearance Impact Debtors’ Credit

At the height of the Covid pandemic, the Department of Education gave all those who held federal student loans an automatic forbearance. Debtors were not charged interest on their loans and were not required to repay them during the pandemic. However, interest on student loans will begin to accumulate again, starting September 1, 2023, and payments are set to resume in October. While it’s obvious that the restart of student loan payments will impact people’s cash-on-hand, it’s equally important to recognize that it may also impact your credit score. Let’s briefly consider how that might happen.

Pre-pandemic Delinquencies

During the pandemic, the credit bureaus didn’t just remove any negative credit information about student loans after the freeze on loans. As the New York Times explained, they also removed existing reports of student loan delinquencies. That meant people received an increase in their credit scores, which enabled them to take on new debt, from buying cars to getting credit cards.

These earlier debts will likely return to people’s credit scores once repayments resume. This would reduce someone’s credit back to their lower pre-pandemic score, but—depending on the new liabilities they accumulated during the pandemic—they could see their score drop even further than that.

When New Payments Coming Due

Once federal repayments have resumed, if you’re more than 90 days past due on a student loan payment, that can show up on your credit report—and it will stay there for up to seven years. (Keep in mind that private loans may be reported to the credit bureaus at an even faster rate—as soon as 30 days after a missed payment.)

VantageScore estimates that as many as 76% of borrowers won’t pay that first payment on time. And that first missed payment, the firm estimates, will result in a credit score decline between 1 point and 9 points. And VantageScore warns that those who don’t resume payments at all could see as much as an 82-point drop in their credit scores.

But it’s not all bad news. For those who resume on-time payment of loans, their credit scores should increase by about eight points.

The only way you’ll know for sure, however, is if you regularly examine your credit report to see if there are any mistakes present.

If so, the credit bureaus are required to fix them. But if you need help having your information corrected, contact an attorney who specializes in representing clients like you. A lawyer can not only help you repair your record, but they can also help you obtain compensation for any damages you sustained.